Almacenes Exito SA (EXTO) 2022 Q3 法說會逐字稿

Good morning to everyone. Thank you for joining us today for Grupo Exito Third Quarter 2022 Results. Please note that this conference is being recorded.

(Operator Instructions) I'm pleased to present our CEO, Mr. Carlos Mario Giraldo; and CFO, Mr. Ruy Souza.

Please move now to Slide #3 to see the agenda. We will cover Grupo Exito's financial and operating highlights, performance by country, consolidated financial results for the third quarter of 2022 and for operations in Colombia, Uruguay and Argentina. (Operator Instructions) Thank you for your attention.

I will now turn the call over to Mr. Carlos Mario Giraldo.

Thank you, Maria. I want to greet all of you. It's very good to have you here again for this call for our Q3 results. I'm going to go straight to Slide #4 and to speak about the change in structure and increased float and shareholder base for Exito in the project that we are advancing here. This is the project for the listing of Exito through ADRs and BDRs while maintaining its position and improving its liquidity in the Colombian Stock Exchange.

We would be growing -- going from a current 96.5% GPA with a float of 3.48% which is the current situation to a situation in which by the end of the project Casino would hold 34%, GPA 13% of an Exito position and there will be a float which would increase from 3.48% to 53%. Probably becoming the most floated share in the Colombian Stock Exchange. Our stock would be quoted in the New York Stock Exchange through ADRs in the Colombian Stock Exchange and through BDRs in Brazil. This would have an increase in liquidity, clearly an increase in visibility for the stock of Exito. And it's an opportunity to unlock value of Exito which has been punished by the lack of liquidity and it would increase the shareholder base to more than 50,000 shareholders.

Going forward to Slide #5, we speak about the time line for this transaction. We are now in the process of preparation for the transaction and preparation for the listings and this would be ended by December of this year. Then during the first quarter of next year, there would be the decisions that have to be delivered by the governance bodies of GPA. And finally, we think that the completion would be done towards the end of the first semester of 2023.

Going forward and now getting straight to the results of the third quarter of this year, we continue with a very dynamic increase in consolidated revenues. Total net revenue was COP 5.1 billion with a top line increasing in total by 22.6%, being best-in-class in Latin America and same-store sales plus 19.6%. EBITDA grew by 12.9% with a margin of 7.8%.

The share of omnichannel sales got to 11.9% in Colombia. Our revenue continues to be driven by complementary businesses by the innovation formats and by the omnichannel sales. Our innovation formats, while Fresh Market and cash-and-carry now represent 39% of the total sales of the company becoming clearly very material. Our net profit was impacted negatively by the lower tax base that we had in the same quarter of last year by a increase in financial costs given the increase in interest rates in Colombia especially and by the adjustment by inflationary impacts in Argentina.

If we move to Slide #7, we speak about our very important ESG agenda, giving you a follow-up. I would highlight that we continue to work in the 3 dimensions of the company, working to improve the situation of our stockholders and we continue to working for our shareholders' benefit, for our employees and also for our suppliers, in the second level, working for our community and finally, for the improvement of our plant. I would highlight first the 0 malnutrition goal that has been set in children malnutrition reduction. We are now getting to 45,000 children with a complementary nutritional package.

In my planet, we continue to be the main recycler in Colombia, accumulating in the Q3 15,000 tons and going through with the initiative of Soy Re, which is an initiative to do the recycling of PET bottles and plastics at many of our stores, more than 50 of our stores where we're teaming with our suppliers to make it a joint effort. In the planting of trees to contribute to the forest of Colombia, we completed the redemption of 470,000 trees by our customers and we continue with the goal of arriving to 1 million trees.

Finally, I would say in reputation in the most important survey done in Colombia, which is done by Merco, we arrived at the eighth position, improving 5 positions against the last year. And in the [Radar], a think tank survey, we arrived in the first place.

Going to Slide #8. Speaking about the sales in Colombia, sales in Colombia continued to be very dynamic with a total growth of 15.9%, same-store sales 14.2%. If we look at in a longer term, in 2 years, the growth in 2 years is 32.6%. It is important to say that regardless of the high inflation in Colombia, especially the high food inflation, we have a positive volume of a total of 1.46% increase in the quarter and a very important traffic increase of 13%.

This traffic increase has to do a lot with a big traffic increase in [Carulla], given the Turbo project. The Turbo project done in alliance with Rappi goes in less than 10 minutes to the households. And given that the ticket is lower, it has assured a very important increase in traffic.

Our focus in Colombia continues to be innovation. And it's very important to say that we have a center in the customer as has been the philosophy and the mission of Exito. We measure the Net Promoter Score, the NPS and our NPS arrived to a very positive grade of 72 against 50 points last year.

In the accumulated for 9 months, we continue with a very strong growth in sales of 22.1% same-store sales. It is very important the effort that the company is doing to contain the impact of food inflation in our customers. And I would like to say that while food had an increase to the customers in Colombia, in general to the Colombian consumer of near to a little above 26 points, our increase in inflation, our increase in prices was 5.7 points below, which is very important contribution, not only to our customers, but also to our competitivity in prices.

In Slide #9, I would like to go and to make some remarks about the growth per segment. In Carulla, we had same-store sales growing 16.5 points and we had a 21% omnichannel share. In the low-cost formats, we had an increase in same-store sales of 21.4% and the Surtimayorista was the most important growth format with another very strong quarter with near to 30% growth in same-store sales, while arriving to mid-single numbers in EBITDA. The low-cost formats as a whole in the last 2 years have seen a growth of same-store sales of 37.3%.

Going to Slide #10, it's important to go back to our innovation formats. The total share of our innovation formats today is 39%, as I said before, making a focus on Exito WOW format. Now the WOW stores of Exito are 33% of the total sales of Exito. They remain with a very positive ROI of 54%. There is a potential to take to the WOW format 89 stores in the following 4 to 5 years. And we have seen in those stores that are now mature under the WOW format a growth of 26 points against the rest of the brand.

Going to Carulla Fresh Market, the Fresh Market now represents 53% of the total sales with an ROI of 15 points, our potential of 58 stores to be taken still to the Fresh Market and a growth of the mature stores, 11 points against the rest of the Carulla brand. In SurtiMayorista, we have seen quarter after quarter same-store sales growth near to 30%. It is the best-performing brand today and we're looking at an expansion of around 80 stores in the following 3 to 4 years. Next year, our plan is to open between 20 and 25 new SurtiMayorista stores, which would add something like 22,000 to 23,000 square meters of new retail space to the company in this very good performing format.

In Slide #11, we go to omnichannel to make a focus in the quarter. The quarter saw increase in omnichannel sales of 23.2%. And in Colombia, with a share of 11.9%, increasing 80 basis points against the comparable quarter. In food, where we are making a very important focus and we have a strong lead against the market in the combined service between our rapid partnership and a direct service done by the company, we increased omnichannel sales by 36%, arriving to a high level share of 10.8%. It's important to say that here the sales break between what we do through Rappi and what we do directly in our own service is around 50-50, doing a very interesting balance for our omnichannel food service.

In total orders, we arrived in the quarter to 3.5 million and in the year-to-date to 9.2 million, increasing by 58%. We think that we are going to go beyond the 12 million commands home deliveries by the end of the year. The pillars for growth in omnichannel and especially in food are the Turbo project, the service below 10 minutes; the Misurtii app that we are using to deliver to the mom-and-pops; the WhatsApp chat book service to our customers and the Click & Collect, which is the most profitable service and it is now around 1/4 of the total deliveries that we are doing.

In Slide #12, I would speak about the traffic monetization, very peculiar and consistent strategy of the company. I would recall the importance of the credit card now with a stock of 2.5 million cards arriving to a portfolio of loans near to $1 billion and growing by a strong 46% in Colombian pesos. And TUYA continues doing banking as a service now with important customers where we serve their credit card like Alkosto, Viva Air and recently Claro, the main telco player in the Colombian market.

Speaking about Puntos Colombia, Puntos Colombia remains as the main loyalty Colombian program. It has today between the customer base of Bancolombia in Exito, 6.1 million active customers, which have granted Puntos Colombia the average data to use extensively and responsibly the database. It has now 158 partners that is companies that issue and redeem points within Puntos Colombia. Puntos Colombia continues to consolidate as a second currency in our country and in the horizon too of development, we are looking to become a loyalty program as a service for the small and medium-sized enterprises to develop payment solutions and of course, to grant media services out of the important customer base.

Now I will hand the floor to Ruy to go over real estate and the financials.

Thank you, Carlo Mario. Thank you, everyone, for being here with us. Starting on Slide 13, I would like to give you an update regarding the real estate business. As you know, the real estate business is composed by shopping mall galleries within the hypermarkets and shopping malls within Viva Malls. The whole business accounts for 758,000 of GLA within 34 assets. We have now an occupancy rate of 96.3%, pretty much in line with last year and the revenue from the recurring monthly revenue from rentals and administrative fees have been growing 32% for the first 9 months and grew 25% in the third quarter.

Within Viva Malls, we have 18 assets, 568,000 of GLA with a very positive performance throughout the year. As you can see, net revenues grew 21.7% for the first 9 months and recurring EBITDA 22.3% for the first 9 months as well. And Viva Malls already represents 40% of the other revenues of the company and 13% of the recurring EBITDA at consolidated level for the first 9 months and obviously, remains as one of the most important complementary businesses within the company and a very important hidden value in terms of valuation for Grupo Exito.

Moving on to Slide 14 to review operating performance, operating and financial performance in Colombia. First, I would like to mention that we had another quarter with solid double-digit top line growth and also a recurring EBITDA growth by 2% during the quarter, being 9% for the first 9 months of the year. If we go to the P&L for the first -- for the third quarter, sorry, we can see that net revenues grew 15.5%, once again, positively impacted by the positive contribution of the innovation formats and also by the omnichannel activity.

And with our gross margin deteriorating 86 basis points, basically affected by TUYA performance in terms of royalties and also due to inflationary pressures in terms of costs, as you saw before, we are having -- we are being 5 to 6 points below the food inflation for the country in terms of internal price increase, which is a strategy to maintain also this positive growth in terms of sales. Given all that, gross profit in terms of cash grew 11.2%.

In terms of expenses, we had a third quarter pretty much in line in terms of rate, meaning that the expenses grew in line with the revenues to reach an EBITDA of COP 284,000 million to a margin of 7.7%. If we look the first 9 months accumulated period, we can see that net revenues grew by 20% with a very positive operational leverage in terms of expenses, diluting almost 90 bps for the first 9 months. If we see the bridge, you can see that the contribution from the retail segment has been positive by COP 96,000 million and 10 bps additional contribution. The contribution from the complementary businesses recurring activity is plus COP 27 million, COP 28,000 million and we have, for the first 9 months, a decrease in terms of development fees by COP 55,000 million.

And in terms of margin, if we compare the first 9 months of 2022 to the previous 3 years, we can see that the margin has been evolving positively and the EBITDA CAGR for the last 3 years is a double-digit growth of 10.6% in terms of cash.

Moving to Slide 15 to review Uruguay financial results. For the third quarter, revenues grew 24.8% in Colombian pesos and 11.1% in Uruguay in pesos. We had a very positive impact with the exchange rate. Nevertheless, the growth in terms of local currency was above inflation as well.

In terms of margin, a positive evolution as well as a positive evolution in terms of expenses. So a pretty much in line recurring EBITDA of double-digit 10% versus 10.1% last year. When we see the first 9 months, the conclusion is pretty much the same. Net revenue is growing above inflation, 26.6% in terms of Colombian pesos with a stable gross margin, stable expenses and stable EBITDA at 10.2%, 20 bps above last year and pretty much stable when we compare to 2021 and 2020 in double-digit terms.

Moving on to Slide 16 for Argentina financial results, we had a very positive performance -- operating performance in Argentina as we saw on the last 2 quarters. For the third quarter, the revenues in Colombian pesos grew 71.3% in local currency, COP 132 or COP 125 in same-store sales, both of them above inflation that landed at 83% for the third quarter. The main thing to highlight in terms of revenues is the launch of the cash-and-carry format in Argentina under the name of Mini Mayorista, which is a format very similar to the SurtiMayorista in Colombia. We have already converted and launched 5 stores under this format by the end of the third quarter.

Actually, we have been moving on in the month of October as well. These stores have been performing very well and aggregating the major part of the positive performance in terms of sales. The omnichannel share reached 5.2%, which is almost double what we had 1 year ago. And the occupancy rate in the real estate business is on the level of 90%, which is very positive for the country. For the first 9 months, revenues grew 55.8% with the gross margin evolving 100 basis points and a very positive operational leverage diluting expenses by 200 basis points to an EBITDA of COP 341,000 million, compared to COP 7,000 last year and 1% margin. As you can see on the graph on the right side, the evolution on the last 3 years has been very positive in terms of growth and also in terms of EBITDA margin for Argentina.

Moving to Slide 17, in terms of consolidated figures, we can see that net revenues reached COP 5.1 billion for the third quarter, COP 1 billion additional to the third quarter of last year, with a 22.6% growth with a stable gross margin, with a positive evolution in terms of EBITDA of 12.9% in cash, lending with a margin of 7.8%.

In terms of accumulated period for the first 9 months, revenues was COP 14.4 billion, with a 23.5% growth. Gross margin, 60 basis points below last year and total SG&A 53 basis points below last year, which leads to a recurring operating income, in line in terms of margin at 4.7% and a recurring EBITDA of 7.8% growing in cash 16.4%. When we see the EBITDA evolution for the first 9 months, for a segment, we can see that retail contributed positively with COP 158,000 million.

The complementary business recurring contribution was COP 56,000 additional to last year and a COP 55,000 decrease in terms of real estate development and an EBITDA CAGR for the first 9 months of the year when we compare to 2019 of almost 12% in terms of cash. In terms of net group share results, for the third quarter, we landed at COP 50,000 million compared to COP 126,000 out of the third quarter of 2021.

And if we move on to Slide 18, I'll give you the highlights to explain this evolution. So as you see, at the third quarter of 2021, we had COP 126,000 million of net income. During the last -- during the first 9 months of the year, the operating contribution was positive at COP 29,000 million, and the non-recurring expenses reduced by COP 11,000 million both contributing with almost COP 40,000 million for the first 9 months.

In terms of income from associates, being the most important one, TUYA. In this case, we had a negative impact by COP 23,000 million. As we discussed on the previous quarters, TUYA has been having a negative impact in terms of provisions related to the loan portfolio growth. Actually, in terms of non-performing loans, the levels have been pretty much stable at a low single digit, but this very positive growth in terms of loan portfolio is generating the need to account provisions. We expect that this is a temporary effect because this loan portfolio will generate income on the following months.

In terms of financial results, we had before the IAS 29 impact, a negative COP 44,000 million valuation. This is pretty much related to the increase in terms of interest rates. The interest rates for the third quarter were almost 8 points, sorry, 8 percentage points up last year, which is very material. And in terms of -- and this will lead us to have a net income of COP 9,000 million before the IAS 29 adjustment and before the impact that we have on deferred taxes due to the positive base that we had related to the tax reform of 2021.

Moving on to the financial debt and cash situation at the holding level. The main message here is that the net financial debt improved by COP 262,000 million before the dividend payments and the buyback operation that we performed between May and June, meaning that the cash flow generation to shareholders was COP 262,000 million throughout the last 12 months, which is stable if we compare to COP 273,000 million being the last 12 months of September 2021. The gross debt, as you can see on the graph, rose by 25%, but the structural debt remained unchanged, which is the good news here.

So this is all from the financials. Now I'll hand in -- I'm handing in to Carlos Mario to go on with the conclusions for the third quarter. Thank you.

Thank you, Ruy. Going to Slide #20, I would make -- highlight the following aspects. First, the consistent double-digit sales growth that we have seen for now around 4 quarters and once again growing in this year above 20% or a total of 22.6%. EBITDA growing also at double-digit at 12.9%, with a contribution of all geographies. Net profit impacted, as Ruy explained in a very extensive way, by the tax base by Argentina inflation impact and by TUYA provisions. ESG consistent in the social aspects with focus in shorter nutrition and circular economy to help the environment. Colombia, with innovation formats now arriving to 39% of the total sales and omnichannel sales around 12% with food omnichannel more than 10% share.

Our expansion, very important this year, arriving to around 35,000 square meters of new retail space that is additional to the reforms to the conversions and the innovation that we have in WOW in French Market and other formats. And looking forward, we are going to expand next year, at least in 30,000 square meters with a focus in cash-and-carry, but also opening stores like, for example, some stores in the Carulla brand. International business, finally, with a strong performance, both in Uruguay and in Argentina.

This has been the presentation for today and we would open it for the Q&A session. Thank you very much to all of you.

(Operator Instructions) First question comes from Nicolas Larrain.

Yes. I have 2 actually. The first one was maybe some outlook that you can give us for 2023? Like what trends are you seeing? Or how should we think about especially Colombia into next year? And my second one was on omnichannel. We've seen high penetration. I was just wondering if you have a target, or you think that this can go even higher in the future? Is there may be a sweet spot that you would like to achieve?

I will take both questions. First, what we see for the third or the fourth quarter, first is that sales continue to be strong. We believe that we have a very demanding base because we have 2 days of non-VAT tax difference in last year to this year, we will only have one this year, while in the last quarter we had 3. That will mean a difference, I would say, of around 5 points in sales. But October, as for now we saw a very strong continuity in sales even with traffic and volume increases, regardless of inflation.

For next year, we believe it's going to be a demanding year. It's going to be a demanding year not only in volumes, given the impact of interest rates in consumption, but also, it is going to be a demanding year in profitability given the big pressure that everybody is going to suffer in costs. We are, of course, preparing ourselves to work very hard in productivity, but it's a reality for all the market.

For facing the year, it is important what we are doing. First, that we are expanding much more in the cash-and-carry format. We think that for moments of inflation and of price (inaudible) by the consumer, this is a key format, which is profitable from the first moment and which is keeping a cost level of around 10%, the lowest cost level of any format that we know by public information in the Colombian market.

The second thing that we are doing is we are reinforcing the importance of the available portfolio of products around 300 SKUs that now contribute to more than 5% of the food sales of the company and have given us a very good price position in the main basic basket products in food and in laundry and personal care products for the Colombian consumer. The third thing, which is going to be very important next year and is being very important this year is private brands, especially brands like Econo, which have a very good economic perception and which is increasing by 42% this year.

And finally, what I would say is that home delivery will continue exploding and that's going to be important for next year. So regardless of the challenges that we are going to see, we believe that we have the instruments, that we have the pillars, which will permit us to continue to be very competitive in this market.

Going to omnichannel, what's important is that when we compare what happened at the end of the pandemia to what happens today, we are very much very similar in share to what we had at the end of the pandemia, it's to remember that we went from a share before pandemia of 4.5% to a little above 12%.

Now that we are comparing against periods where stores were open, we see an increase in share. You can see it, for example, in this quarter where we increased above the total sales, the omnichannel sales, and we increased that share. What we believe looking forward is that we probably will be increasing by year around a 100 basis points. We don't think it's going to increase as in pandemia because things stabilize and because we think that the great and a nice combination is increasing sales in the stores and also in the omnichannel activities, that gives us really a big competitive and comparative edge against other players that do not have the right and strong combination of virtual platforms and a strong store footprint.

Perfect. And if I may, just a small one for Ruy. I just wondered if you could refresh me on what's the consolidated cost of debt in the -- I mean, for Exito and if it's all floating? Or is there a percentage that is fixed?

Sure, Nicolas. Look, in terms of cost of debt, we have -- before giving you the figures, we have basically the structural debt and the revolving credits. For the structural debt, which is now around $200 million, we have contracts with [IBR] which is now at 11% plus 200 basis points, which means that the cost would be 13%.

Nevertheless, we have 43% of this debt with a hedge with interest rate swaps. So the cost actually is not 13%, but it's around 11%. We have like a benefit by having this hedge of around 200 basis points. And the revolving credits that they have around, they have contracts with IBR plus 350 or 400 basis points. Throughout the year, we use roughly COP 600,000 million or COP 700,000 million of these revolving credits during 6 or 7 months of the year.

So all together, we have in Colombia, a cost of debt of around COP 130,000 million, COP 140,000 million for the year of 2022. For 2023, we expect that the rates will begin to decrease. But in terms of average rates comparing 2022 to 2023, we guessed they will be pretty much the same, meaning that the cost of debt should be pretty much the same when we compare 2023 to 2022. And from 2024 on, the expectation is that the interest rates will normalize to the previous figures that we had, for example, in 2019, 2018.

We have a question from [Francisco Mora]. Yes.

I have 2 questions. You mentioned the change in Net Promoter Score from 50 to 75 is no usually to see this change an abrupt -- do you have details for the change of this measure?

You mean the change in the Net Promoter Score, right?

Yes, very important thing.

Okay. Yes. What I believe is that during the last year, we had some impacts in Net Promoter Score coming from the disturbance that there was in supply chain, which was very difficult for the consumer. But at the same time, there's a huge, huge emphasis on customer experience in the company. And we have had a increase in Net Promoter Score in Carulla, in Exito and also in the popular brands and especially in the online. The online service had huge challenges during the pandemia. And now it has leveled and we have improved a lot the experience both at the moment of buying, but especially in the service post-buying in this kind of service. I know it's a huge hike and our big challenge is going to be to have it in a continuous improvement, obviously, from a high level.

Okay. In the U.S. strategy, you mentioned the elimination of 3 ingredients from Taeq product. Do you know which are these ingredients or some of this?

Yes. As you know, in Colombia, we're having legislation, which is creating the obligation starting next year to include in the products, in the food products, the sales, sales, negative sales that come from excess in sugar or from excess in salt or from excess in fat. What we have done is that we have taken that more than 500 references that we have in Taeq and to work them in order -- ideally to be able to be next year with no negative sales in Taeq, being Taeq such an important brand that is going to be arriving near to COP 90,000 million in sales and which is becoming now the third healthy brand in Colombia, comparing with the suppliers because there's no other important retail, a healthy brand and which has the goal in 5 years to begin to become the leader in healthy brands in Colombia.

So for us to work very aggressively in reducing and in doing some recomposition, some redefinition of some of the products or excluding some products of the portfolio is a total priority at this very moment. And the whole food team with our suppliers has been concentrated in this. Taeq is really innovation and Taeq is a key differentiation private high-level brand for this company.

If there are no more questions at this time, I will now turn the call over to Mr. Carlos Mario Giraldo for closing remarks.

I thank you all very much for being here for the Q3 results. As you know, everybody is facing important challenges coming out of a inflationary environment in the world, but today in Colombia also and the impact not only on consumer, but also in costs and we are prepared to face that with productivity and with our formats and with our products and with our private brands and our omnichannel facilities. We believe that we continue with record historic growth above 20%, that is that this year we'll probably add to the company like 1/5 of the size that it had in the previous year, which is a lot when you think about a company that has been for many, many, many years in the market.

The second thing is consistency. We continue to be consistent but dynamic within the consistency, consistent in innovation, consistent in platforms, digital platforms and the combination with our physical footprint and consistent in the importance to customers and profitability of our complementary businesses. We believe that the process through which Exito is going through the definitions of GPA is going to be key for shareholders. It is going to give liquidity going from more than 3.4% to near to 53% and giving a huge opportunity to unlock much of the value that the company has and we also will continue to promote ESG standards.

We know that governance is key and today is governance continues to be very strict in the company. We know that our alliance with the community is key for keeping reputation in the high standards it has to do and to keeping our close to the heart of our consumers and we finally know that today, we have a huge responsibility for the environmental balance in our brands and the planet. So thank you very much and we look forward to see you for the complete year results at the beginning of next year.

This concludes today's conference. Thank you for participating.